Lloyds TSB finds £1bn bonus for Abbey National

LLOYDS TSB is set to make a renewed takeover approach to Abbey National after identifying almost £1 billion in additional revenues that a merged entity could achieve.

The move will surprise City bankers who had expected Lloyds TSB to wait until the Office of Fair Trading ruled on its proposed deal before making a move. Peter Ellwood, chief executive of Lloyds TSB, could make the bank's £19.5 billion approach to his counterpart Ian Harley this week although it is more likely that the contact will be made early next week.

This valued Abbey shares at £13.63 yesterday, against a closing price of £12.18, down 11p, while Lloyds TSB slipped 1p to 735p. One insider said: "I would think it unlikely that these terms will be changed." Lloyds TSB hopes to persuade Abbey National that its new approach actually represents better value for the former building society's shareholders.

The main thrust of Lloyds TSB's renewed approach will be the identification of up to £1 billion of additional revenues that its advisers now believe could be generated annually within five years by combining the two banks. The board of Abbey National rejected Lloyds TSB's informal approach in December as "inadequate and uncertain".

At that time Lloyds TSB claimed that between 7,000 and 8,000 jobs could be cut and between £500m and £700m could be shaved off costs each year. It was not clear yesterday whether the new approach will list further job cuts or exactly where the additional revenues are derived from.

Lloyds TSB is keen to pursue a friendly takeover of Abbey National but it is thought that if this third approach is rejected, it might mount a hostile bid. However, the bank may decide to wait for the OFT decision, which is due by February 23, before pursuing that strategy.

The latest move ends a six-week impasse between the two banks. Abbey National has continued to pursue merger discussions with Bank of Scotland, and insiders report that good progress has been made. It is believed that the location of the head office has proved tricky, although insiders played down suggestions that the issue could become important enough to derail talks.

However, City bankers believe Abbey National's enthusiasm for the deal is declining, although such suggestions are rejected by insiders. One banker said: "I sense Abbey National is backing away from Bank of Scotland until it sees whether Lloyds TSB puts more money on the table."